Tariff in PPA Not Binding If Accelerated Depreciation Not Availed; State Entity Cannot Act Like Private Trader: Supreme Court

Wind Power Producers Not Bound by Fixed Tariff in PPA if They Opt Out of Accelerated Depreciation: Supreme Court Reiterates Statutory Supremacy in Tariff Fixation Over Contractual Terms in Renewable Energy Projects. Supreme Court of India dismissed a set of statutory appeals challenging the entitlement of wind energy producers to seek project-specific tariff determinations despite having executed Power Purchase Agreements (PPAs) with a pre-determined tariff. The bench comprising Justice Sanjay Kumar and Justice Satish Chandra Sharma upheld the Gujarat Electricity Regulatory Commission (GERC)’s orders, emphasizing that mere contractual terms in PPAs could not override statutory provisions, especially where the energy producers did not avail accelerated depreciation under the Income Tax Act, 1961.

The dispute arose when four wind energy companies—Green Infra Corporate Wind Pvt. Ltd., Vaayu (India) Power Corporation Pvt. Ltd., Green Infra Wind Power Ltd., and Tadas Wind Energy Pvt. Ltd.—entered into PPAs with GUVNL between 2010 and 2012 at a fixed tariff of ₹3.56 per unit, as determined by GERC's Order No. 1 of 2010. These tariffs were premised on the assumption that the producers would avail of accelerated depreciation benefits under Section 32 of the Income Tax Act, 1961.

However, the companies later filed individual petitions before the GERC, stating they had not opted for accelerated depreciation and thus sought case-specific tariff determination as permitted under the GERC’s 2010 order. GUVNL resisted this move, asserting that the fixed PPA tariff was binding.

The GERC ruled in favour of the producers, which was affirmed by the Appellate Tribunal for Electricity (APTEL). GUVNL appealed to the Supreme Court.

Can a power generator seek revised tariff under GERC orders if it did not avail accelerated depreciation, despite having signed a fixed-tariff PPA?

The Supreme Court answered in the affirmative, holding that the statutory scheme under the Electricity Act, 2003, and GERC’s Order No. 1 of 2010 allowed such revision:

“The GERC made it clear that for a project which did not get such benefit [accelerated depreciation], the Commission would, on a petition filed in that respect, determine a separate tariff taking into account all the relevant facts.” [Para 5]

Do statutory authorities retain tariff-determination powers even after execution of PPAs?

Yes. The Court held that tariff-setting is a statutory function and cannot be restricted by contractual terms. It drew support from its earlier judgment in GUVNL v. Tarini Infrastructure Ltd.:

“It must lean in favour of flexibility and not read inviolability into the terms of a PPA in so far as the tariff stipulated therein is concerned.” [Para 14]

Did GUVNL obtain any binding commitment from the producers about availing accelerated depreciation?

No. The Court found that GUVNL had failed to secure any written commitment from the companies confirming that they would opt for accelerated depreciation:

“Without securing such commitments...GUVNL cannot take advantage of its dominant position...to bind them to the price mentioned [in PPA] for the entire life of their projects.” [Para 24]

PPA Clause Conditional on Accelerated Depreciation

Although the PPAs specified a fixed tariff of ₹3.56 per kWh, the Supreme Court clarified that this was conditional and applied only to those availing accelerated depreciation:

“The GERC...stipulated that the levelized price of ₹3.56 per kWh was to apply only to those wind energy projects that availed the benefit of accelerated depreciation.” [Para 21]

Statutory Option to Avail Accelerated Depreciation is Exercised Later

The Court explained that the choice to claim accelerated depreciation can only be made at the time of filing tax returns, not at the time of signing PPAs:

“This liberty and discretion...could not be truncated...by fixing a binding price unilaterally in the PPA.” [Para 22]

It highlighted a “conundrum” in which a power producer must sign a PPA before generating power, but can only choose depreciation benefits after generation starts:

“Unless it generates power and sells it under a PPA...it would not file its return of income...The tariff mentioned in the PPA would necessarily have to be conditional...” [Para 23]

GUVNL’s Conduct Criticized as Unfair

The Court severely criticized GUVNL’s attempt to bind producers to a tariff not applicable to them: “Such conduct, akin to a Shylock, does not reflect positively upon GUVNL.” [Para 24]

Further, the Court emphasized that as a State instrumentality, GUVNL must act in accordance with government policies promoting renewable energy: “GUVNL cannot act contrary to the policy by fixing a tariff...which, on the face of it, is contrary to the mandate of Order No.1 of 2010.” [Para 24]

No Estoppel Against Statutory Rights

Rejecting GUVNL’s plea of estoppel, the Court held: “It is not open to GUVNL to contend that the four respondent companies are estopped...as they had willingly signed PPAs...” [Para 25]

Regulatory Tariff Supersedes Contractual Terms in Public Interest

In dismissing GUVNL’s appeals, the Supreme Court reaffirmed that statutory powers of regulatory commissions to fix tariffs in the public interest cannot be curtailed by private contractual arrangements. Where power producers have not availed accelerated depreciation, they retain the right to seek a revised tariff—even post-PPA execution.

This ruling reinforces the principle that regulatory oversight in electricity pricing prevails over commercial negotiations, especially where public interest and renewable energy promotion are involved.

Date of Decision: August 4, 2025